USDCAD: Parity in Sight

Global factors such as continued recovery and increased demand from China increase the support for commodity currencies. With the outlook in 2010 for positive growth in the U.S. economy we can expect to see a boost in the demand for Canadian oil. The Canadian dollar has a positive correlation with commodity prices and so it tends to do better when oil is trading higher.

The unexpected drop in nonfarm payroll will not help confidence in USD. Whilst payroll numbers in Canada fall short of impressive the data has been much more robust and the currency may benefit from that.

From a technical perspective this market has been in a strong downward trend since Q2 2009. We are approaching the lows that we saw back in October 2009; these will be tested and once we see a close below 1.0278 we are likely to see the next move down to parity and possibly beyond.